Division 296 super tax is a controversial Federal Government proposal to impose an extra 15% tax on some superannuation earnings for individuals whose total superannuation balance (TSB) exceeds $3 million as of June 30 of the relevant income year.
This measure is not yet law and must still pass both Houses of Parliament. At the time of publication, the start date had not been confirmed, although the Government was initially hoping that the measure would apply from July 1 2025, with the first tax bills to be sent out sometime after June 30 2026.
How does it work?
While we await to see whether the measure will become law, let’s assume for the moment that the Government passes legislation consistent with its announcements to date. If so:
- If your TSB is over $3 million as of June 30, a portion of your annual superannuation earnings above that threshold will be taxed at an additional 15%.
- The tax is assessed to you personally and can be paid from your super or your own funds.
- Superannuation earnings for this purpose reflect the increase in your net super balance for the year, adjusted for certain contributions (eg, inheritance via death benefit pension) and withdrawals.
- Some exclusions apply: children on super pensions, structured settlements (personal injury), and the deceased.
It is important to remember that your TSB is the aggregate of all Australian superannuation interests (including balances with APRA funds, SMSFs and defined benefit schemes) held at the end of the income year.
If the start date is July 1, 2025, then the first test date will be June 30, 2026. An individual’s TSB at this date, and each following June 30, will determine whether they will have a Division 296 tax liability for that income year. Only where the individual has a TSB on June 30 in excess of $3 million will they have a Division 296 tax liability for that income year.
Examples
Sam’s account
- June 30 super balance: $4 million.
- Annual growth: $120,000.
- Portion above $3m: ($4m–$3m)/$4m = 25%
- Taxable earnings: $120,000 × 25% = $30,000
- Extra tax: $30,000 × 15% = $4,500
Chris withdraws
- Chris withdraws $200,000 before June 30, so his TSB is below $3 million at year-end.
- Chris will not pay Division 296 tax for that year.
Lisa’s inheritance
- Lisa’s balance rises from $2 million to $4.5 million after receiving a death benefit pension.
- Only new investment growth (not the transferred amount) is taxed as earnings; however, a total balance exceeding $3 million may still result in a liability.
What can you do?
- Review your super fund liquidity and cash flow planning for future tax payments
- Ensure your asset valuations are up to date
- Estimate your combined super balances and plan for any large transactions
- Document asset values, especially for SMSF members
- Seek tailored professional advice before making any changes
While we await the outcome of the legislation passing through Parliament and whether any significant amendments or adjustments are made to the proposed measures, please reach out if you have any questions or concerns about the proposed super tax..